Gas-rich states lose fracking lottery

Source: Thomson Reuters Foundation - Mon, 14 May 2012 20:15 GMT

Author: Reuters

By Joan Gralla

May 14 (Reuters) - While Pennsylvania, northwestern Louisiana and gas-rich areas around the Gulf of Mexico are losing jobs and revenue as the fracking industry shrinks after a price collapse, oil-rich North Dakota and Texas are in the midst of a boom.

Other winners in the fracking lottery include central and southern Louisiana, Mississippi, Ohio and Wyoming, where the economy is expanding and revenues are climbing.

As oil prices are expected to stay around ${esc.dollar}100 a barrel for at least a couple of years, the success of these states may last longer. But the high volatility of energy prices may give local economies a headache.

With natural gas prices touching 10-year lows three weeks ago, there could be more pain ahead for gas-rich communities and states where fracking was until recently a growth industry.

The forerunners in fracking natural gas are a case in point.

Parts of northwestern Louisiana, where the Haynesville shale is located, already have been hit as gas rigs left. In Bossier City-Parish, one of the communities in the Haynesville area, the rural district tax revenue fell 25 percent to ${esc.dollar}2.5 million from January to April, according to tax administrator Ken Kirspel.

Economists warn that this type of reduction in local revenues could spread throughout Lousiana as natural gas output falls, cutting more jobs and revenue.

In the last two years, the oil and gas extraction industry added 36,000 jobs around the nation. Most of those jobs were in natural gas fracking, according to Dean Baker, an economist with the Center for Economic and Policy Research, in Washington, D.C.

Those jobs could move elsewhere, other experts said.

Fracking is a drilling technique that extracts oil and gas from shale by blasting it with water, sand and chemicals. Environmentalists have raised concerns about possible air and water pollution. Due to these concerns, Vermont is set to ban fracking, and New York has placed a moratorium on it.

How many jobs will be lost in gas production and gained in oil drilling is difficult to estimate, economists say, but local communities in gas-rich areas will feel the pain.

The estimated number of jobs lost could reach 72,000 - or double the jobs added during the fracking boom, said Baker of the Center for Economic and Policy Research. This assumes that each fracking job created one more job in related areas, such as trucking and steel manufacturing, and in other sectors, from hotels to shops, where oil and gas workers spend their wages.

GOODBYE GAS, HELLO OIL

The decline in gas rigs happened swiftly in Louisiana's gas-rich Haynesville shale. The number of rigs has dropped to about 40 from over 140 over the past 18 months, said Don Briggs, president of the Louisiana Oil and Gas Association.

"These rigs are moving to Texas or other places to drill wells ... for oil instead of natural gas," he said.

Caddo Parish, which enjoyed the fracking boom, is getting squeezed now. Sales tax revenue fell 18 percent in 2011, and has kept slipping this year, said Erica Bryant, director of finance. "We will have to monitor the situation to determine its effect on our operations."

Some of the economic damage comes from the lost payments that landowners hoped to get from drilling companies.

Suzanne Stinson, the court administrator for Bossier Parish, said a company that leased property from her family for three years has not renewed the contract.

"It didn't come as a surprise to us," she said, noting other landowners had the same experience.

The metropolitan area around Shreveport, a Haynesville drilling hub, had 6,800 mining and logging workers in March 2012, down from a year-ago peak of 7,200, according to the Louisiana Workforce Commission.

The state's severance tax, its natural resource levy, has yet to recover from the Great Recession. It only produced ${esc.dollar}764 million in 2011 versus a 2008 peak of ${esc.dollar}1.047 billion. The state's budget last year was about ${esc.dollar}25 billion.

Natural gas drilling could remain depressed for a couple of years, economists say, because that is how long it could take to work off the oversupply created by fracking.

The price of natural gas has fallen to about ${esc.dollar}2.50 per million British thermal units from around ${esc.dollar}13.70 in July 2008. Output fell in February, and the decline was the bigger of two monthly drops in 12 months..

Drillers have reacted. The number of gas rigs fell last week to 598, the lowest in a decade. Yet the total number of oil rigs rose to 1,372, a 25-year high..

Pennsylvania, which opened its doors to fracking, has started to see gas rigs leave the state. The number last week fell to 95 from 108 a year ago.

"I think Pennsylvania will see some moderation and there probably will be some short-term adverse effects on jobs," said Eric Smith, a professor at the Tulane Energy Institute, in New Orleans.

The state, whose oil and gas revenue leaped to ${esc.dollar}419 million in 2011 from ${esc.dollar}176 million in 2006, could see that windfall shrink as more rigs leave, economists said To put that figure in perspective, the state's budget last year totaled ${esc.dollar}27 billion, with gambling alone producing ${esc.dollar}1.4 billion in 2011 tax revenues.

NORTH DAKOTA'S OIL RUSH

Many rigs have moved to North Dakota because of its oil-rich Bakken shale formation.

Its mining and logging sector rose to 21,000 workers in March 2012 from 15,500 in December 2007, and its oil output topped California's in January. Economists expect more gains. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For a graphic on states' job gains and losses see: http://link.reuters.com/rev28s ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

North Dakota's oil production in January averaged 546,284 barrels a day and "I think it's very realistic to assume this becomes a million barrels-a-day production," said John Harju, associate director for research at the University of North Dakota's Energy & Environmental Research Center in Grand Forks.

The state's 3 percent jobless rate could fall further, and might even be lower in a few drilling hotbeds, like Williston.

"There's no unemployment here, everybody's home values have gone up, but at the same time, there is a lot more traffic," said Tom Rolfstad, the town's economic development director.

North Dakota's oil tax revenue - which totaled ${esc.dollar}1.027 billion from July 1, 2011 to March 3, 2012 - is expected to keep rising. Its budget is about ${esc.dollar}4.2 billion.

The state is aiding its booming localities, planning to send them about ${esc.dollar}1.2 billion by the time its two-year budget ends on June 30.

"They certainly have been our Big Brother through this whole thing ... but it is kind of hard to keep up," Rolfstad said. (Reporting By Joan Gralla; Editing by Tiziana Barghini and; Jan Paschal)

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of the Thomson Reuters Foundation. For more information see our Acceptable Use Policy.